Steinhoff debacle: Can Markus Jooste end up in jail for insider trading?

CAPE TOWN – Who has the authority to prosecute former Steinhoff chief executive Markus Jooste?

Steinhoff, the once darling of the JSE, wrote of billions of rand in recent times. Steinhoff reported a spectacular $4 billion (R60bn) operating loss in the 2017 fiscal year, in a much-delayed earnings report revealing the impact of a $7.4bn accounting fraud.

Steinhoff is known to be South Africa’s biggest corporate scandal ever.

According to media reports in May 2019: “Steinhoff, which is also listed in Frankfurt, delayed the results after finding holes in its accounts, shocking investors who had backed its reinvention from small South African furniture outfit into a discount furniture retailer straddling four continents.

“The owner of Mattress Firm in the US, the Fantastic chains in Australia and Conforama in France said operating loss came in at €3.7 billion (R61bn) in the year ended September 2017 compared with a profit of €278m in the restated 2016 figures.”

The company blamed write-downs for the loss as it cleans up its balance sheet. The total write-downs have already topped €13bn since revealing the fraud that left it on the brink of collapse and wiped out more than R200bn ($13.87 billion) of shareholder equity.

“The consequential impact of reversing the accounting irregularities is the fact that the restatements highlight that several of the group’s operating entities are unprofitable,” Steinhoff said in a 359-page annual report posted on its website.

According to Business Insider: “An investigation by auditor PwC released in March found that eight people, including former Steinhoff executives, were involved in a complex scheme where potential intercompany transactions worth €6.5bn were fraudulently recorded as external income to prop up profits and hide costs in money-losing subsidiaries.”

Jooste tipped off his friends

According to other media reports, Jooste tipped off a few friends that the Steinhoff stock price was about to come under pressure.

This was revealed by Bloomberg news agency, which has seen a mobile phone text message that Jooste sent to at least two people, warning them that bad news was about to spill out into the open.

It is illegal to make beneficial trades on the basis of access to confidential information.

The text message also firms up suspicions that Jooste was aware of, and directing, financial jiggery-pokery, although he has denied any wrongdoing and blames Steinhoff woes on an ugly fight with a former business partner.